The Deleveraging Spiral

https://abs.twimg.com/emoji/v2/... draggable="false" alt="💰" title="Geldzak" aria-label="Emoji: Geldzak">Borrow money to buy asset
https://abs.twimg.com/emoji/v2/... draggable="false" alt="📈" title="Grafiek met stijgende trend" aria-label="Emoji: Grafiek met stijgende trend">Asset goes up
https://abs.twimg.com/emoji/v2/... draggable="false" alt="💸" title="Geld met vleugels" aria-label="Emoji: Geld met vleugels">Borrow more, buy more
https://abs.twimg.com/emoji/v2/... draggable="false" alt="🛑" title="Stopteken" aria-label="Emoji: Stopteken">Asset flatlines
https://abs.twimg.com/emoji/v2/... draggable="false" alt="📉" title="Grafiek met dalende trend" aria-label="Emoji: Grafiek met dalende trend">Asset goes down
https://abs.twimg.com/emoji/v2/... draggable="false" alt="💲" title="Groot dollarteken" aria-label="Emoji: Groot dollarteken">Lender requests money
https://abs.twimg.com/emoji/v2/... draggable="false" alt="🥲" title="Smiling face with tear" aria-label="Emoji: Smiling face with tear">Sell asset to pay lender
https://abs.twimg.com/emoji/v2/... draggable="false" alt="⤵️" title="Pijl naar rechts en dan naar beneden gebogen" aria-label="Emoji: Pijl naar rechts en dan naar beneden gebogen">Selling drives asset down
https://abs.twimg.com/emoji/v2/... draggable="false" alt="🏦" title="Bank" aria-label="Emoji: Bank">Lender asks for more money
https://abs.twimg.com/emoji/v2/... draggable="false" alt="😫" title="Vermoeid gezicht" aria-label="Emoji: Vermoeid gezicht">Sell more to pay lender
https://abs.twimg.com/emoji/v2/... draggable="false" alt="☠️" title="Doodshoofd met gekruiste beenderen" aria-label="Emoji: Doodshoofd met gekruiste beenderen">Asset collapses

This is the generalized model of every financial downturn since the invention of credit.

If you understand it, the state of markets—stocks, crypto, everything—will make a whole lot more sense.

Example 1: Evergrande https://twitter.com/sahilbloom/status/1439920043404546050">https://twitter.com/sahilbloo...

Example 2: Archegos https://twitter.com/sahilbloom/status/1381602265736171522">https://twitter.com/sahilbloo...

The trigger is always different, but the sequence of events is always eerily similar.

It’s not fun to watch…but it’s certainly nothing new.

I’ll write more about this in the weeks ahead as stories arise. Follow me @SahilBloom to catch some simplified learning in your feed.